Innovation Killing Your Company

There was an article this week in the Wall Street Journal about Innovation killing the laundry detergent business. The basic premise of the article was the introduction of Tide Pods, individual load packets of detergent, were eating away at the total market share of the industry, effectively destroying it.

In the article, Mr. James Craigie, CEO of Church & Dwight Co (producers of discount detergent Arm & Hammer and Xtra brands) s quoted saying "Pod is killing the laundry detergent category. New products ought to expand the revenue pie for manufacturers and retailers, not shrink it." I know it has been 30 years, but Mr Craigie needs to review the basics of innovation that he should have learned while at Harvard.

Innovation creates a better value proposition for the consumer of product, and therefore can increase the consumer base, and / or the profit margin of the new products in the market. This increase can then lead to higher profits for the innovative company, even when the total market may contract.

Successful start-ups are based on this principle of innovation which regularly eats into a larger company's market share or even an entire market. Research In Motion (RIMM) launch of the smart phone spelled the demise of the PDA market. Digital cameras and high resolution ink jet printers killed Eastman Kodak's photography paper business. The digital camera industry is now being killed by the smart phone.

Innovation inherently destroys something in order to create something better. A company who does not keep up with new innovations, or rather one like Church & Dwight who believes innovation should only favor business, is going to encounter troubles.

Small firms should use innovation to their advantage by focusing on products which increase the value proposition to the consumer. If your company is in a market that you see as shrinking, figure out where the market is going. Short of a natural disaster, consumers NEVER disappear. A shrinking market indicates a shift in the market to a new product which fulfills the sames needs as your product, but with a better value proposition to your product. Understanding these market changes allows you to adapt to the changing situation and grow your company.

AVAS Partners helps companies understand the changes in their market and make the changes necessary to grow the company. Contact us for more information on how we can help you grow your company.

Closing the Sale

This morning at the City Club's "City Business Group" we discussed the concept of closing a sale. During the discussion, Spencer South from Southern Environmental mentioned he knew of 60 different method for closing a deal. I took it as a challenge to find the 60 different methods.

Here is a list of some of the types of closing techniques. (Note most of this list is taken from ChangingMinds.org)

1-2-3 Close - close with the principle of three.

Adjournment Close - give them time to think.

Affordable Close - ensuring people can afford what you are selling.

Alternative Close - offering a limited set of choices.

Artisan Close - show the skill of the designer.

Ask-the-Manager Close - use manager as authority.

Assumptive Close - acting as if they are ready to decide.

Balance-sheet Close - adding up the pros and the cons.

Best-time Close - emphasize how now is the best time to buy.

Bonus Close - offer something special to clinch the deal.

Bracket Close - make three offers - with the target in the middle.

Calculator Close - use calculator to do discount.

Calendar Close - put it in the diary.

Companion Close - sell to the person with them.

Compliment Close - flatter them into submission.

Concession Close - give them a concession in exchange for the close.

Conditional Close - link closure to resolving objections.

Cost of Ownership Close - compare cost over time with competitors.

Courtship Close - woo them to the close.

Customer-care Close - the Customer Care Manager calls later and re-opens the conversation.

Daily Cost Close - reduce cost to daily amount.

Demonstration Close - show them the goods.

Distraction Close - catch them in a weak moment.

Doubt Close - show you doubt the product and let them disagree.

Economic Close - help them pay less for what they get.

Embarrassment Close - make not buying embarrassing.

Emotion Close - trigger identified emotions.

Empathy Close - empathize with them, then sell to your new friend.

Empty-offer Close - make them an empty offer that the sale fills.

Exclusivity Close - not everyone can buy this.

Extra Information Close - give them more info to tip them into closure.

Fire Sale Close - soiled goods, going cheap.

Future Close - close on a future date.

Give-Take Close - give something, then take it away.

Golden Bridge Close - make the only option attractive.

Handover Close - someone else does the final close.

Handshake Close - offer handshake to trigger automatic reciprocation.

Humor Close - relax them with humor.

Hurry Close - go fast to stop them thinking too much.

IQ Close - say how this is for intelligent people.

Minor points Close - close first on the small things.

Never-the-best-time Close - for customers who are delaying.

No-hassle Close - make it as easy as possible.

Now-or-never Close - to hurry things up.

Opportunity Cost Close - show cost of not buying.

Ownership Close - act as if they own what you are selling.

Price-promise Close - promise to meet any other price.

Puppy Close - acting cute to invoke sympathy and a nurturing response.

Quality Close - sell on quality, not on price.

Rational Close - use logic and reason.

Repetition Close - repeat a closing action several times.

Retrial Close - go back to square one.

Reversal Close - act as if you do not want them to buy the product.

Save-the-world close: - buy now and help save the world.

Selective-deafness Close - respond only to what you want to hear.

Shame Close - make not buying shameful.

Shopping List Close - tick off list of their needs.

Similarity Close - bond them to a person in a story.

Standing-room-only Close - show how others are queuing up to buy.

Summary Close - tell them all the things they are going to receive.

Testimonial Close - use a happy customer to convince the new customer.

Thermometer Close - they score out of ten, you close gap.

Think About It Close - give them time to think about it.

Treat Close - persuade them to 'give themselves a treat'.

Trial Close - see if they are ready for a close.

Valuable Customer Close - offer them a special 'valued customer' deal.

Ultimatum Close - show negative consequences of not buying.

Yes-set Close - get them saying 'yes' and they'll keep saying 'yes'.

Over the next few weeks I will explore how you can use each of these techniques to close a deal involving a commodity, a product, a service or an experience.

Private Investing and Silent Partnerships

You've worked for a while and put away some savings. The stock market is way too risky and bonds returns are horrible. You want to invest in a new venture where you can get a decent return. Assuming you meet the legal requirements, that'll be explained another time, you'd be investing in the company as what is commonly called a silent partner.

A silent partnership should legally be setup as a limited partnership. The limited partner (LP), aka the silent partner, provides capital to the business while the general partner (GP) manages the day-to-day operations of the business. The limited partner's liability is completely limited to the amount of capital they invested while the general partner's liability can range from nothing to being personally liable for all business actions.

Generally a good way to setup the business is for the LP to provide 90% of the capital needed to start and run the business. In exchange for the capital the LP receives a small portion of the company stock (15-25%) and a large portion of the capital in company debt (80-95%) which is personally guaranteed by the GP. The GP gets initially the same amount of stock as the LP and earns out the remaining stock over a 5 year period. This setup protects the investment of the LP while providing a significant upside and allows the GP to manage the company as they see fit.

Operationally, the GP controls EVERYTHING. The GP should be meeting with the LP occasionally to update the LP on business direction and seek some advice on major decisions. The LP should offer assistance when requested, but should never be involved with day-to-day operations.

Designing a successful limited partnership involves considerable planning and the right personalities in the General Partner and the Limited Partner. It's not something you should try doing on your own, and you should seek outside advice from a business consultant and a lawyer. The consultant will help build the structure of the agreements while the lawyer will help protect both parties from each other. Both the lawyer and the consultant should be specially experienced for dealing with complex new ventures. Most generalist business attorney's don't understand the complexities of the contracts needed and often can leave one party exposed to unnecessary risks. On the consultant side, building the control, equity and buyout structures are considerably more complex than a general business consultant can handle.

The Social Network glosses over the sacrafices needed to start a successful business.

This past weekend "The Social Network" hit movie theaters and explained, some what realistically, what happened during the founding and initial growth of Facebook. The Wall Street Journal put out a column 1 about 4 tips a start-up can draw from the movie. WSJ mentions:

Look for Inspiration in the Smallest Moments

Ask Your Family and Friends for Seed Money

Don't Be Afraid to Dream Bigger

Make Sure You're on the Same Page as Your Coworkers

The Wall Street Journal makes a few good points, but they fail to mention that the movie glosses over the most important factor affecting the success of most new ventures; the boat loads of time required to start 99.99% of successful businesses. I have never meet a successful business owner who didn't work their fingers to the bone. Some work intensely on previous endeavors that failed and they used the experience garnered from the failure to launch a second business successfully. Others just sacrificed everything at the start the business for their long-term success.

Our firm helps entrepreneurs start their own businesses, and I have had to correct clients on the belief that they can have a 'normal' life while starting their dream business. Even though it has become cliche in corporate world, the sacrifice helps create 'ownership' in the project by the principles involved. Our help may drastically reduce the length of time the entrepreneur needs to sacrifice their 'normal' life, it does not eliminate the need. We have designed our level of involvement in the start-up process to expedite the development of the business and eliminate as many of the capital wasting errors made by many entrepreneurs.

Nielsen Reports Bing #2 Search Engine

After years of faltering in the #2 spot, Yahoo! has fallen to #3, being replaced by Microsoft's Bing. Nielsen reports that Bing increased by 2% last month while Yahoo! fell by 8%, which shifted Bing ahead of Yahoo! in total US searches for August 2010. Google still dominates the search engine market at 65.1%.

This same shift, and the huge, 30% jump by Bing year-over-year should be making some search engine optimization people rethink their google only matters approach. Also, the July 2009 deal between Yahoo! and Microsoft where Bing will power Yahoo! searches was implemented just last month on August 24th, 2010. This effectively means SEO for Bing now directly covers Yahoo! searches, creating a single 27% chunk of the search engine pie. Specialized optimization for Bing is an interesting proposition for businesses to consider. If your business can not consistently get the first spot on Google, the top listing might be a nice alternative.

July 2010 employment numbers show small businesses leading the way in job creation

The July 2010 National Employment Report released by payroll firm ADP 1 indicates that the US non-farm PRIVATE payroll increased by 42,000 in July and actually did better than previously thought in June by increasing 19,000, versus the previously thought 13,000.

On Friday, the Bureau of Labor Statistics will release the total payroll statistics, which will include federal, state and local government hiring. In order for the economy to really recover and enter a sustained expansion, the private payroll must keep increasing, and by larger amounts each month.

What effect does 42,000 new jobs really have on the current economic situation when there is 9.5% unemployment? Assuming the median salary for these new jobs is ~80% of the national median salary ($35,000) because employers can pay less with the high competition for jobs, and the salary is evenly distributed over the year. This creates $122.5 million increase in economic activity next month. Cutting out the 30% for taxes and 35% for housing, this creates $42.8 million to be cycled through the economy next month. Using a 100% overhead of net salaries to net revenues, this should create 7145 jobs next month just from the 42,000 created this month. This doesn't seem like much, but it is an additional 6% increase in employment. Using the typical risk factor of 5% and no increases in the workforce, just the recycling of money from these increases in the employment rate would reduce the national unemployment rate to 6%. This is just over the 'optimal unemployment rate' of 5%.

Would more jobs being created be better? Yes, however as the unemployment rate continues to drop, the Federal Reserve will increase interest rates in order to prevent a mini-bubble putting the country back in a recession within months. Small businesses should use this time when sales are increasing but interest rates are low to get their businesses in order by reviewing their marketing strategies, fixing operational inefficiencies and locking in their financing at these low rates.